But how does one go about developing this crucial (and somewhat mythical) skill?

The “advice” puts the focus on your in-meeting tactics, whereas–for most of us–strong negotiation arises naturally from the groundwork you did outside the meeting. It’s about setting up your other choices so it’s no big deal if you have to walk away from this particular option.

You negotiate well by creating enough other options that you sincerely don’t need this one.

If you need it, and pretend you don’t, then you’re engaged in bluffing, not negotiation. Negotiation is about finding a deal which is mutually preferable to everyone’s next-best-options.

If your next-best-option is actually nothing, then you don’t have a leg to stand on.

The better you make your next-best-option, the stronger your footing in negotiations.

If you’re like me (that is, the sort of person who is unable to bluff their way into a check with lots of zeroes on it), then trying to improve your negotiation skills directly is a red herring.

Instead, you should be focused on increasing the quality of your next-best-option. And you increase the best option’s quality by increasing the total quantity of options you expose yourself to.

Your baseline

If we’re talking about jobs, then your first job will be the next-best-option for whatever happens next. When you slip someone your resume and they come back with a laughable offer, you can make an easy ultimatum because it’s worse than what you already have.

Even in the case of the very first gig, your next-best-option is to do nothing, or to sell figurines on ebay, or whatever is currently keeping you fed.

That’s why you still get unemployed people happily declining shopping mall retail jobs — their free time is worth more than minimum wage[1]

Skipping steps

Sometimes you don’t even need to commit to one choice — you can keep the deal on the table and use it as your next-best-option to negotiate harder on the rest of the set.

I’ve heard about startups running this gambit to double or triple their valuation and it’s the reasoning behind the rule of thumb that you should never sign your only term sheet. Without two investment offers to play off each other, you’re liable to get given something only marginally better than your current bootstrapping option, in which case: why add the overhead?[2]

Outliers

Sometimes, you have the chance to pitch for an opportunity too good to believe. It’s miles ahead of anything else you’re currently considering and might allow you to skip years of the normal advancement process.

Go for it! Take a punt. Why not?

But don’t get too fussed if it doesn’t come through, and remember to re-evaluate it’s quality should they decide to negotiate you into the ground. When something’s that far above your next-best-option, you don’t have a great deal of leverage.

Sometimes you go into a meeting you’ve already lost because of the options you didn’t create beforehand.

For startups, this is why getting to break-even is such a crucial milestone. If the runway death clock’s bell is about to toll, then your startup’s next-best-option is bankruptcy.

It’s hard to negotiate “like you don’t need” it in a situation like that.

Big meeting coming up? Start hustling your next-best-options right now so you can make the most of it.

[1] Incidentally, I suspect this is also one of the reasons young professionals from wealthy families rise faster than normal — they have a baseline of parental support which is higher than most of their colleagues salaries, and are thus able to laugh off offers their peers would salivate for.

[2] Convertible debt creates an exception to the “never sign your only term sheet” rule because it allows you to defer on choosing a valuation until later, when you presumably have more data and more bidders.

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I'm a tech entrepreneur, author, and partner at FounderCentric, where we help accelerators and universities design and deliver better startup education programs. I've successfully bankrupted 3 companies, am a YCombinator alum, and have built products used globally by brands like MTV & Sony. I've raised funding in the US and UK and recently crowd funded a card game. I wrote The Mom Test book about the practicalities of early stage customer development and sales. It's full of jokes. I live in Barcelona mostly.

3 Responses to Negotiate like you don’t need it (and other worthless advice)

Solid advice Rob! Basically the moral of the story is to put yourself in a position where you can genuinely/authentically convey that you have nothing to lose. If you have other options/opportunities you will more likely convey the fearlessness necessary in important negotiations. Brilliant!

Obviously having two offers (options) on the table is the bomb and holding out for another with only one in hand is brilliant. But I also had success setting price and time parameters around one pretty good option with the idea that the “other option” is to have a whole new plan for growing the business. When the “down to the ground negotiating” began, I quickly moved into my “other option,” held my price and timelines. It worked. Sometimes good negotiating is simply flushing out motivations and the true desires of the other party.